Covid-19 and insurance: the after effect - Curacel

Covid-19 and insurance: the after effect

October 12, 2021

COVID-19 impacting the Global and specifically, the African Insurance Industry forcing the industry for better solutions 

The covid-19 pandemic is continuing to have a massive impact on businesses, society, and individuals worldwide. Though there are indications that insurance companies have begun to find new strategies and business models, not only to survive but also to drive growth.

The effect of the pandemic on the global insurance market has primarily affected premium growth prospects, capital markets volatility, and asset risks. The other significant impacts to the insurance industry are profitability and solvency. The solvency ratio of an insurance provider is the size of its capital relative to all risks it has taken. 

Solvency Ratio Formula | Calculator (Excel template)
Image: EduCBA

The pandemic has increased the pressure on profitability, specifically on composite – an insurance premium based on the average risk profile of a group rather than the risk profile of an individual policyholder and life insurers. The first six months of the 2020 covid-19 crisis impacted the investment revenues and the adjustment of insurance employees to the new realities – from how to work from home and facilitating claims. The gains were affected by investment and impairment losses from financial market recessions, besides the increased expenses.

What risks does COVID-19 pose to society in the long-term? | World Economic  Forum
The World Economic Forum

For the past several years, the penetration rate of life and health insurance has reduced significantly in America. The penetration rate in 2008 was at 3.9 percent, but it decreased to 2.9 percent in 2019. The low interest rates have affected the life insurance industry, which has prevailed since the massive recession. Africa, according to the McKinsey Global Institute had an average real annual growth rate of 5.4% from 2000 up until 2010. Due to the drop in commodity prices, weak global demand and the impact of political instability growth slowed to average real growth of 3.3% for the years up to 2015. In 2020, life and health insurance witnessed a meaningful decline in its services due to the covid-19 crisis.

Africa has the fastest growing market; yet adoption is still low

The covid-19 pandemic has a considerable impact worldwide on communities, families, and individuals’ lives. For most of Africa, the insurance company has been affected by the increased number of business interactions and reduced sales volumes and physical interactions with clients. 

The Nigerian insurance industry, for example, reports an economic slowdown resulting from the crisis. There is also a decline in interest rates and massive credit risk exposures from firms facing reasonable defaults. In the sub-Saharan parts of Africa (SSA), the pandemic has slowed down insurance policy sales throughout the region. 

To have a clearer understanding, a PWC 2020 report titled “COVID-19 and the Nigerian insurance industry“; the Nigerian implemented some effort to ameliorate the effect of the coronavirus pandemic, like:

+ The CBN introduced NGN100 billion to support the health sector

+ Contingency funds of NGN984 million (USD2.7 million) were released to Nigeria’s Centre for Disease Control, and an additional NGN6.5 billion (USD18 million) is planned.

+ From 1 March to 31 December 2020, there will be a waiver of import duty on medical equipment, personal protection and other medical necessities.

Although, referencing a McKenzie 2020 report on Africa’s insurance market; Africa is currently the second fastest-growing insurance market in the world, that is, after Latin America. The African insurance market was expected to grow, before the COVID-19 pandemic, at 7 percent per annum from 2020 to 2025. 

In this market, the most prominent distributors are brokers and agents driven by SSA (Sub- Saharan part of Africa). Besides, most consumers in these areas are not willing to engage digitally. The strict regulations continue to restrict digital sales. 

Most insurance companies in Africa have witnessed a decline in premium payments. This could be attributed to unstable or falling commodity prices, weaker global demand, and the impact of political instability in the region. Insurance premium growth slowed to average real growth of 3.3% for the years up to 2015, according to the McKinsey Global Institute (MGI).

Also Read: How Technology Can Supercharge Insurance Distribution Channels Effectiveness

The place of technology as a key to mitigate measures

The insurance industry is recovering through the key mitigating measures:

  1. Risk acceptance, understand the probability of it happening and accepting the consequences that may occur.
  2. Risk Avoidance, not performing that activity that causes the risk.
  3. Risk mitigation, the process, and methods of controlling the risk.
  4. Risk reduction involves taking countermeasures to decrease the impact of consequences, for example, risk transfer like that of buying insurance.   

Insurers have implemented different cost-cutting measures to alleviate the future reduction in revenue. More insurance companies are making adjustments to their pricing specifically, exploring a better personalization pricing model. 

Also Read: Claims Management: Taking a determined stand against insurance fraud

Now, technology is playing a massive role in the recovery and driving the insurance industry’s growth – in distribution, underwriting, pricing, and claims. One such technology is the adoption of artificial intelligence. AI is becoming more deeply integrated into the industry, and insurance companies are beginning to respond to the changing business landscape. A study by McKinsey shows that experts estimate there will be up to one trillion connected devices by 2025. 

Future is looking bright for the industry 

Projections for the recovery of the insurance industry are positive. According to Deloitte, Life insurance premiums may decline 6% globally through the end of 2020 and by 8% in advanced economies. In contrast, a recovery of 3% growth is projected overall for 2021. Also, a Vanguard’s article stated that the financial performance of 17 insurance companies recently submitted to the Nigerian Exchange Group shows a 23.2 percent rise in Gross Premium Written, GPW, to N217.3 billion H1’21, from N176.4 billion in the corresponding period of 2020.

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